A year since joining the multilateral trading facility Turquoise, Robert Barnes explains his team’s strategy and the vision for a single European market
Turquoise is the pan-European equities multilateral trading facility that provides users with a single connection to trade shares, depository receipts and exchange-traded funds of 18 countries with an efficient trading and post-trade model that delivers economies of scale. Members include banks, brokers, specialist trading firms and retail intermediaries.
Successful partnerships with customers is key for Turquoise. Every month we show that we have listened to customers by exploring prospects and executing enhancements, such as expanding the number or type of securities available to trade. It is a privilege to work on new ideas with the user community, and thanks to our customers, Turquoise has achieved remarkable growth in the last year. Turquoise is now the fastest growing equities trading platform, across lit and dark, with meaningful liquidity.
Ten years ago, the publication of the Markets in Financial Instruments Directive (MiFID) envisioned for November 2007 the start of greater investor choice in a more harmonised European regulatory framework. This encouraged entrepreneurial projects with large-scale efficiencies in mind to embrace the potential of, collectively, the largest economy in the world, Europe.
Project Turquoise, an idea in 2006, was an initiative of members exploring whether, as users, we could implement a single competitive multi-country lit order book and innovate in some form of smart anonymous block auctioning. In September 2008, Turquoise launched with regulatory approval. London Stock Exchange Group joined Turquoise as majority owner in partnership with the user community in 2010.
One of the benefits of this relationship is the shared service level arrangements. For example, Turquoise now runs on the same low-cost technology platform, MillenniumIT, in use across London Stock Exchange Group. The benefit to members is not just a state-of-the-art and resilient platform, but also the similarity of application programming interfaces across markets that use MillenniumIT.
Turquoise today allows trading on one of two complementary order books. Turquoise Integrated Lit is a traditional lit order book featuring price priority and includes hidden orders such as icebergs and large-in-scale. Turquoise Midpoint Dark matches orders in shares pegged to the reference price of the primary best bid and offer of the respective European exchange.
A key differentiator of Turquoise Midpoint Dark is that it is the only public, open-access dark pool in Europe that prioritises orders by size. Size priority means larger orders jump to the front of the queue. With size priority and user-defined minimum execution size, Turquoise offers two midpoint matching functionalities: Continuous Midpoint matching and Turquoise Uncross, a buy-side friendly mechanism for randomised periodic auction uncrossings.
Whereas the lit order book gives certainty, the dark pool facilitates matching of larger sized orders while minimising market impact. The benefit of offering two types of order books is that it allows Turquoise to offer complimentary liquidity. The two approaches provide better quality matching towards benchmarks that investors are trying to meet. Customers are choosing to trade in Turquoise Lit and Turquoise Midpoint Dark. The result is significant growth in 2014.
Turquoise Uncross is an innovation that allows buyers and sellers to rest anonymously with potential to match at a time determined by randomised function. The key feature, in addition to size priority, is the randomised function. Having a series of auction uncrossings with a randomised feature means the likelihood of matching at a fair price is higher.
LiquidMetrix, the independent analytics firm that specialises in venue performance metrics, reviewed September 2013 transaction data of European dark pools and then again in February 2014. LiquidMetrix confirmed Turquoise’s best-in-class quality and concluded participants should feel comfortable placing larger orders for longer in Turquoise Uncross. More firms are opting for this functionality. The result is significant growth in Turquoise Uncross.
Turquoise aims to be the European single market trading venue of choice. We believe Turquoise contributes to quality trading and best execution.
The notion of best execution is a priority for market participants. Pre-MiFID, different countries had different definitions with the most common focus on ‘best price’. MiFID harmonised the framework across Europe by re-defining best execution as a process to deliver the best possible result on a continuous basis. This principles-based approach effectively empowers investors and market participants with their respective abilities to evaluate, monitor, justify and decide choice of liquidity venue.
Investment firms traditionally accessing just their respective domestic exchange are increasingly exploring benefits of Turquoise in order to deliver a better execution result for their clients. Turquoise also widens a firm’s geographic offering. A single connection to Turquoise enables share trading of 18 countries, 17 more than just those of its home market.
Connection at the trading level is straightforward. Turquoise, along with other multilateral trading facilities, also innovated the post-trade space. Members today have a choice of three fully interoperable central counterparties (CCPs): LCH.Clearnet, EuroCCP, and SIX x-clear. Structurally, each central counterparty nets and facilitates delivery of the European shares for settlement into their respective country’s central securities depository. This means a member can sell on a local exchange and buy on Turquoise with a flat position. The commercial benefits of consolidating clearing through a choice of CCP serving multiple markets are economies of scale via volume discounts offered by the respective CCP.
As more retail intermediaries and mid-tier tier firms look to become members and efficiently access pan-European liquidity pools offered by Turquoise, the opportunity is for prospective members of Turquoise and general clearing member firms already connected to the post-trade ecosystem serving Turquoise to cooperate for incremental business.
Turquoise aims to make this as simple and as efficient as possible, while at the same time innovating to deliver not just the best experience, but the highest standard of result consistent with principles of integrity, innovation, partnership, and excellence. This is exemplified through Turquoise Uncross, the innovation for trading larger size with best in class quality, independently verified.
